Proposition 39: Business Taxes NO

This is one of a series of editorials on propositions on the November ballot.

This is one of a series of editorials on propositions on the November ballot.

PROPOSITION 39: BUSINESS TAXES NO

In a moment of unclear thinking during a late-night budget session in 2009, the California Legislature created a tax loophole that in essence creates an incentive for companies to locate outside California. This action was a huge mistake and downright stupid.

Since lawmakers have not corrected this in the last three years, we now have Proposition 39, which would repeal this bizarre law that allows companies to choose between two methods of calculating tax liability: the “single sales factor” method based on their sales within California or the “triple factor” method, in which half the tax bill is based on California sales and half on property and employees in the state. Using the “triple factor” allows firms headquartered elsewhere to pay less in taxes.

This loophole costs our state budget $1 billion per year and puts corporations that choose to base their operations here at an unfair disadvantage. Companies that sell a lot of their products here but don’t have many workers or offices in California can really game the system using this loophole.

The proposition would force all companies to use the “single sales factor” method to calculate taxes based upon their sales in California. This method is similar to one used in other states.

Needless to say, the state could use the additional money raised by closing the loophole. But this proposition is not the answer. The biggest contributor to Prop. 39 is Thomas Steyer, a hedge fund manager from San Francisco who has spent millions on the effort. For the first five years after passing, half the additional revenue from Prop. 39 would be used to fund clean-energy and energy efficiency projects.

Once again voters are being asked to take part in a form of so-called ballot box budgeting with the proceeds from the decision to go toward a specific industry. That’s simply wrong. This tax loophole should be fixed by the Legislature, not voters. And if the voters are asked to fix it, then the money gained by closing the loophole should go entirely to the general fund from the moment the proposition is enacted, not to a specific industry for part of the time.